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Monday, January 7, 2008

LONDON (Thomson Financial) - Oil edged further below the 100 usd mark as a slowing economic outlook cooled last week's record run above the key psychological level.

Prices had topped 100 usd on a combination of falling oil inventories, soaring demand in developing economies and geopolitical tensions that could pose a threat to tight supplies, but profit-taking has knocked the top off the market with participants still uncertain about the strength of the global economy.

In the US, data released on Friday showed unemployment has risen to 5 pct, while job creation has slowed to its lowest rate in three and a half years as the toll from the recent financial turmoil continues to mount.

"This data only adds to the gloomy outlook for the US economy, which, some may fear, faces a recession," said Sucden analyst Michael Davies. "There are also concerns about how much a US recession will impact the rest of the world and the demand for oil and this is helping to pull prices back down from 100 usd."

At 12.52 pm, New York's WTI crude for February delivery was down 32 cents at 97.37 usd per barrel, retreating from Thursday's historic high of 100.09 usd per barrel.

London's Brent crude for February delivery was up slightly by 6 cents to 97.15 usd per barrel.

While prices have retreated from last week's record highs they remain at elevated levels, underpinned by fears global demand is rising at a faster rate than supply. Growing demand from fast developing nations such as China and India has come at a time when easily accessible oil fields are becoming more scarce.

"Although Friday's jobs data was soft, thus raising the odds of a US recession, we think commodity markets will need to see a lot more numbers indicative of a slowdown before a more protracted sell-off ensues," said MF Global analyst Edward Meir.

OPEC ministers have continued to indicate that they view the recent surge in crude oil prices as a result of speculation in the market rather than as a symptom of short supply.

The cartel, which is responsible for almost 40 pct of global crude production, held output rates steady at its last official meeting in December, citing adequate supplies. While OPEC production is estimated to be rising, as a result of oil fields coming online after maintenance in the United Arab Emirates, many believe the cartel needs to increase exports to relieve market conditions.

"Despite the increase, total OPEC output remains a long way below our estimate for the call on OPEC crude and stocks in Q1 08, suggesting the potential for continued market tightness ahead," said analysts at Barclays Capital.

Chakib Khelil, the current president of OPEC, said 100 usd prices were "not necessarily very high" given rising demand and higher production costs, adding that prices were still below the 1980 peak when adjusted for inflation.

"OPEC continues to tell reporters how everything is moving on the back of speculation - and the ministers have been singing this same song for nearly six years, since prices were 30 usd," said Cameron Hanover analyst Peter Beutel.

The cartel has arranged a special meeting in February to review its position in light of continuing high prices and the current global economic uncertainty.